SAP+SuccessFactors: A Good Day for the Cloud

Born in Denmark, Lars Dalgaard speaks 8 languages. But perhaps he is most fluent in creating break-out companies. During the dot-com bust of 2001, he founded SuccessFactors (Nasdaq:SFSF). He thought the cloud would be the next-big-thing in the enterprise.

It was certainly spot-on. SuccessFactors now has over 3,500 customers in 168 countries and 15 million paying recurring users. And yes, it was enough to attract a $3.4 billion buyout offer from SAP (NYSE:SAP).

OK, so what does this deal mean for the cloud space? To get insight on things, I reached out to some of the top players in the industry:

Frank Slootman, CEO of ServiceNow: “Certainly one giant vote for SaaS at scale and cloud computing in general. Scarcity of these assets drives valuation. Legacy companies appear hell-bent to not be left behind. Deals like this by Oracle and SAP will further strengthen the confidence to move to the cloud and SaaS when the next fork in the road presents itself.”

Zach Nelson, CEO of Netsuite (NYSE:N): "Lars has done a great job of building an independent cloud company, but his next job will be much harder. Inside a company like SAP where subscription revenue represents less than 4% of total revenue, the cloud is still a foreign concept. And large companies have immune systems that seek out and destroy any foreign body that threatens the core revenue stream."

Tien Tzuo, founder and CEO of Zuora: “I've seen this movie before. When Siebel bought Upshot CRM in 2003, it instantly signaled to the world that SaaS CRM was the future, and catapulted Salesforce.com from ankle biter to the de facto industry leader. Salesforce's sales began to shoot through the roof. The same thing is happening again, but for the broader industry. SAP buying SFSF and ORCL buying RNOW are flat out admissions that the old software model is dead.”

Phil Fernandez, CEO of Marketo: “SAP's acquisition signals the start of a new chapter for the SaaS industry. Aggressive moves like this by the major enterprise software players demonstrate the strategic importance of native cloud-based technologies. Oracle has made similar moves, and we anticipate IBM (NYSE:IBM) and others to quickly follow suit.”

Jason Lemkin, CEO of EchoSign, which was recently sold to Adobe (Nasdaq:ADBE): “The deal seems like a relative steal. SAP gets to accelerate its SaaS strategy with a proven winner that is adjacent to its core strengths. The multiples that appear somewhat high today for SaaS leaders are in fact cheap because the webification of business processes is 5-10 years behind the consumer web revolution.”

Jason Green, general partner, Emergence Capital Partners: "If the jury was undecided on whether cloud and SaaS were a threat to the largest legacy software providers, SAP's acquisition is the final testimony. Not a single legacy software provider has made the transition to the cloud successfully on their own after many years of trying. The gloves are off now in the fight to own the cloud."

Isaac Garcia, CEO of Central Desktop: “To date, large enterprises have mostly adopted cloud technology for non-mission critical apps (file sharing, social communities and so on). SAPs acquisition is mostly driven by fear but it also signals a recognition by SAP that its wants to deploy mission critical applications in the cloud (ERP, HR, collaboration and project management). Of course, if they don't, they will eventually become irrelevant.”